‘This kind of inflation leaves people living on a wing and a prayer’

interactive investor's head of pensions and savings comments on the latest ONS data.

Consumer price inflation in March stood at 7%, up from 6.2% in February, according to ONS inflation data released this morning.

Becky O’Connor, Head of Pensions and Savings, interactive investor, said: “A 7% inflation figure is cause for despair – but what’s even harder is knowing it is going to get worse. For many households, the reality already feels far worse than even this high number suggests.

“In the same week that benefits, including the state pension, rose by only 3.1%, we can see just how far behind vulnerable households, are already falling. If something you need now costs £10.70 but you only have £10.30, how do you pay for it? This is the kind of daily dilemma now being played out around the country. People on benefits have to get through at least the whole year on fixed incomes that do not cover their outgoings – and they are already behind.

“Energy bill rises are not surprisingly the main culprit, however the March figure doesn’t even include the impact from the latest rise in the energy price cap. While warmer weather during the summer months may offset some of the cap rise initially, people will be looking towards October and November with dread.”

Impact on ability to save for the future

“The thought of saving for the long term has been reduced to a pipe dream for many. A poll from interactive investor last week found that one in five people had stopped contributing to long term investments and savings to deal with the rising cost of living.

“Expect the proportion abandoning future financial security to deal with the difficult present to rise further. Our data has also indicated a rise in the amount that retirees are withdrawing from their pensions, compared to the pre-pandemic average, leaving older people at greater risk of running out of money in retirement.

“Over the next few months, more evidence of people failing to cope with price rises is likely to emerge. The most recent Bank of England money and credit data shows credit card borrowing is rising steeply compared to the pre-pandemic average. It also shows people are saving less than they did before the pandemic. So the savings account and ISA coffers, which enjoyed an artificial boost from lockdowns, are now running dry and people are having to turn to debt. There is only so long that can go on for before we start to see a rise in defaults.

“Without emergency savings cushions, any unexpected bills can mean a rapid downturn in fortunes. We save and invest for financial security – it looks like that is the big price many are paying to get through the week. This kind of inflation leaves people living on a wing and a prayer. Any efforts people can make to preserve their savings and keep contributing towards their long term goals will be worth it in the long run.”